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Chapter 27: Q.20 (page 622)

Consider panel (b) of Figure 27-2. The quantity Q1 is 2,000units, the price P1 is \(2per unit, the average cost AC1 is \)4per unit, and the vertical distance to point C is $6per unit. What is the dollar amount of the losses earned by this natural monopolist when its price is equal to its marginal cost of producing Q1 units?

Short Answer

Expert verified

the dollar amount of the losses earned by this natural monopolist is$4000

Step by step solution

01

Given Information

Natural Monopoly alludes to a market where there should exist just a single dealer. In certain business sectors, a solitary dealer is expected for proficient creation since that one firm can deliver the complete result at a lower cost than a few firms could.

02

Explanation

Assuming the long-run normal expense bend of the restraining infrastructure is constantly falling over the whole scope of market interest, then, at that point, it demonstrates that only one firm can serve the market.

We know,

Quantity Q1=2000units

PriceP1=$2per unit

Average cost AC1=$4per unit

The total revenue = $4000and the total cost = $8000

Hence the loss is=$4000-$8000=-$4000

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Most popular questions from this chapter

The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay \(1,000, but if it is in poor condition, they will pay only \)200. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain.

Suppose that a business has developed a very high quality product and operates more efficiently in producing that product than any other potential competitor. As a consequence, at present it is the only seller of this product, for which there are few close substitutes. Is this firm in violation of U.S. antitrust laws? Explain.

Why do you think that many firms with lengthy truck routes now try to recruit married couples to drive their trucks?

Are lemons problems likely to be more common in some industries and less common in others? Based on your answer to this question, should government regulatory activities designed to reduce the scope of lemons problems take the form of economic regulation or social regulation? Take a stand, and support your reasoning.

A package delivery company provides both overnight and second-day delivery services. It charges almost twice as much to deliver an overnight package to any world location as it does to deliver the same package to the same location in two days. Often, second-day packages arrive at company warehouses in destination cities by the next day, but drivers intentionally do not deliver these packages until the following day. What is this business practice called? Briefly summarize alternative perspectives concerning whether this activity should or should not be viewed as a form of price discrimination.
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